The battle lines between the bulls and bears are growing clearer as the market's recent uptrend slows. The indices had become overbought, and they ran into some technical overhead, but there isn't any big rush for the indices.
The bears' primary narrative is that global growth is slowing and earnings expectations are too high. Mario Draghi is expected to confirm that Europe is suffering from a slowdown at a media conference today. Both France and Germany posted some weak economic news -- and for the first time in a decade, the ECB is not using more stimulus to deal with worries about slowing.
In the U.S. there are some vague concerns about economic slowing, as well. Housing is showing signs of weakness and there are other data points of concern, but so far, earnings news has been good. The warning from Apple (AAPL) back in December seems to be mainly a China issue and hasn't spilled over to create worries in the U.S.
Even if the U.S. economy is slowing, market players have taken comfort in a more dovish Fed. Much of the downside in the fourth quarter was caused by concerns that the Fed was still anxious to raise rates, although there were signs of slowing growth around the world. That issue has been reconciled and is providing good support.
The uncertainty over where the market is heading is likely to keep the market action choppy, but what adds some addition drama is the government shutdown and the trade negotiations with China. Either of these issues could produce a market-moving headline at any time.
Although the market has gone straight up since the shutdown, the likelihood is that a resolution will produce a strong positive reaction. It may not last, but it prevents an aggressive bearish stance.
The same holds true on the China trade issue. While this is likely to unfold more slowly and inconsistently, there is the potential for market-moving headlines at any time. The indices have been particularly sensitive to this news in recent days, with several quick moves on comments by the news media and Trump officials like Larry Kudlow.
On Wednesday, good earnings for several companies helped individual stocks but had limited impact on the overall market. There are more good reports this morning, with the chip sector in particular posting some good results. That is having limited impact on the early action, but does help to keep a bid under the market.
The market has gone from grossly oversold to wildly overbought and now it is trying to determine what it will do next. I expect the uncertainty to produce less trending action and more choppiness as earnings season continues.
